Wednesday, September 21, 2011

How U.S. China policy is tilted against American workers

What will it take for the U.S. government to reform its unbalanced China policy?

A new study by the Economic Policy Institute (EPI) lays down the hard facts on a trade relationship with China that is by far the most unbalanced in the world. For example:

 Between 2001 and 2010, the outsized trade deficit with China cost at least 2,800,000 U.S. jobs, 1,900,000 them in manufacturing.
 Included in that total for all sectors were 453,100 jobs lost or displaced from 2008 to 2010 alone.
 World trade in advanced technology products – once hailed as a source of comparative advantage for America – is now dominated by China. Hardest hit are the computer and electronic parts industry.
 China’s entry into the World Trade Organization in 2001 tilted the economic playing field further in favor of multinational companies, which “have enjoyed record profits on their foreign direct investments.”

The impact on American workers is not limited to lost opportunities to get jobs. Competition with China has also driven down wage levels of employed workers, especially in manufacturing. All workers with less than a four-year college degree are the most adversely affected.

The report, written by EPI’s Robert E. Scott, attributes the rapidly growing trade deficit largely to China’s manipulation of its currency in a way that effectively subsidizes China’s exports, “making U.S. goods less competitive in that country and in every country where U.S exports compete with Chinese exports.

In his last two paragraphs Scott evaluates the U.S.-China relationship:

“Is America’s loss China’s gain? The answer is not clearly affirmative. China has become dependent on the U.S. consumer market for employment generation, suppressed the purchasing power of its own middle class with a weak currency, and, most important, now holds over $3 trillion in hard currency reserves instead of investing them in public goods that could benefit Chinese households. Its vast purchases of foreign exchange reserves have stimulated the overheating of its domestic economy, and inflation in China has accelerated rapidly in the past year. Its repression of labor rights has suppressed wages, thereby artificially subsidizing exports.

“The U.S-China trade relationship needs a fundamental change. Addressing the exchange rate policies and labor standards issues in the Chinese economy are important first steps.”

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